How to Claim the State of Iowa Solar Tax Credit
Understand the financial and procedural steps for securing Iowa's solar tax credit, from its relation to federal incentives to filing with your state return.
The Iowa solar energy system tax credit is a state-level incentive that provides a financial benefit to those who invest in solar power for their properties. This program serves to reduce the state income tax liability for eligible participants and is administered by the Iowa Department of Revenue.
It is important to note that the state tax credit for residential installations placed in service after December 31, 2021, is not available. However, the credit may still be available for certain business installations. This article focuses on the process for those business installations that may still qualify.
Determining Your Eligibility
To qualify for the Iowa solar tax credit, the applicant must be the owner of the solar energy system. This includes individuals, corporations, estates, and trusts that have a tax liability in the state. The system must be located in Iowa and placed in service during the relevant tax year. Leased systems or installations under a power purchase agreement, where the taxpayer does not hold direct ownership, are not eligible for this state tax credit.
A qualifying solar energy system is one that uses solar energy to generate electricity or to heat or cool a structure. The equipment must be new and not previously used to be considered for the credit. The installation must be fully complete before an application can be submitted for consideration.
Calculating the Credit Amount
The value of the Iowa solar tax credit is based on the federal solar tax credit. The state credit is calculated using a percentage rate that is tied to 50% of the federal credit as it existed on January 1, 2016. This rate varies depending on when the system’s construction started and when it was placed into service. For instance, business installations that began construction in 2021 and were placed in service by 2023 qualify for an Iowa credit of 11%. The calculation is based on federal Form 3468 for businesses.
The basis for the calculation is the total cost of the system, which includes expenses for the equipment, installation labor, and any necessary permitting fees. The Iowa Department of Revenue has set a maximum credit amount that can be awarded for a single installation. For a business installation, the tax credit is capped at $20,000 per system.
The state allocates a total of $5 million annually for these tax credits. Because the funds are limited, the credits are awarded on a first-come, first-served basis.
Required Information and Application Form
Before beginning the application, you must gather several documents. You will need to have these scanned and ready for upload during the online application process. Required items include:
- A complete and itemized invoice from the solar installer.
- Proof of payment, which can take the form of canceled checks or credit card statements.
- The interconnection agreement or a “utility completion sheet” from your utility company, confirming the system is complete and operational.
- A copy of the completed federal Form 3468, which is the form used to claim the investment credit for businesses at the federal level.
The official application is the Iowa Solar Energy System Tax Credit Application, also known as Form IA 148. You will need to provide specific details on the form, including the date the system was placed in service, comprehensive installer information, and your utility account details.
The Submission and Claiming Process
The Iowa Department of Revenue requires all solar tax credit applications to be filed electronically through its GovConnectIowa online portal. Paper applications are not accepted. This process involves creating a user account on the portal, navigating to the tax credit application section, and uploading all the required documents. For business installations, the application must be submitted by May 1 of the year following the system’s installation.
Once submitted, the Department of Revenue reviews the application for completeness and eligibility. If the application is approved, the department issues an official Tax Credit Certificate. This certificate contains a unique number that is required for claiming the credit. If the annual cap is reached, your application may be placed on a waitlist for the following year’s allocation, but this does not guarantee an award.
The final step is to use the Tax Credit Certificate when filing your annual Iowa income tax return, such as Form IA 1120 for corporations. You must complete and attach the IA 148 Tax Credits Schedule to your return. On this schedule, you will use code 22 to designate the Solar Energy System Tax Credit and enter the unique number from your certificate. If the credit amount exceeds your tax liability for the year, the unused portion is nonrefundable but can be carried forward for up to ten subsequent tax years.